[GNC] Canadian Mortgage

[R. Victor Klassen]

Happily, in Canada, Escrow is not nearly as common a practice as in the US.  So that complication likely does not apply.  

But since this thread wandered off into the question of banks making money off the rounding (in Australia), there was a case in Canada - back in the 70s or 80s, as I recall, where a rogue programmer - someone with a job not unlike Michael's previous life - figured out how to siphon rounding errors into his own account.  I don’t know how much rounding was involved - but it was described (by a member of the fraud unit of the police) as taking the rounding errors from savings interest and putting it into his account.  I would imagine that everything was right to one or two digits beyond the penny, to avoid detection, but then the remainder was truncated rather than rounded, and that error went in one place.  At the time, US banks were small, as they weren’t yet allowed to operate across state lines.  But Canadian banks had no such restrictions and were already operating internationally.  So a tiny bit every month from each of very many accounts added up.

> On Jan 31, 2022, at 10:00 AM, Michael or Penny Novack <stepbystepfarm at comcast.net> wrote:
> 
> On 1/30/2022 9:40 PM, Al Maloney wrote:
>> Victor
>> 
>> Thanks.
>> What you say about formulae and bank practice makes sense to me.
>> Your advice says to me: "Don't sweat the small stuff".
>> 
>> Al Maloney
>> Velox Versutus Vigilans
> 
> Speaking as somebody who has written software to produce mortgage amortization tables, don't sweat it. It would be close to impossible for you to exactly match what the bank has. The problem is that there are simply too many places where assumptions being made, where rounding, how to treat the odd amount at the end, etc. for example, that an exact match cannot be expected. I actually did have a program that could produce  a table to match (given the payment according to the bank) but that used automated "trial and error" adjustment until it did match as opposed to a calculation.
> 
> If  you get a "statement" for each payment from the lender indicated how the payment broken down between principle, interest, and escrow (taxes, insurance, etc.) you can do it in a two step process. Create an extra account under expenses with a useful name like "mortgage payment" (meaning not yet allocated) and have your scheduled transaction use this for the debit. Then when you have the statement you can transfer (credit this) splitting the debits between "mortgage interest" (an expense), "mortgage balance" (a liability), and "mortgage escrow" (an asset) --- later when you get notified that th escrow account has been used to make a tax payment, an insurance payment, etc. you can enter those against the escrow account.
> 
> BTW -- it is really tricky (and so the amount the bank is collecting) to do the escrow calculation because this usually isn't an amount that will collect enough over the year to equal those expenses but an amount that also will keep the escrow account positive at all times (in other words, a "cash flow" calculation). That's why the amount will jump around year to year even if your taxes and insurance amounts remain relatively constant.
> 
> Michael D Novack
> 
> 
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